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The G-33 takes note of documents TN/AG/W/4/Rev.4 and TN/AG/W/7 prepared by Chairman Falconer. The G-33 acknowledges the efforts of the Chairman to find balanced solutions in the agriculture negotiations and would like to express concern, particularly with regard to the issues raised in Paragraph 5(b) of the document TN/AG/W/7 on SSM.

The G-33 reiterates that the SSM must be a mechanism which is suitable for the particular circumstances of their Members and each Members and that limiting the SSM, a priori, as is the intent of some of the proposed modalities, is disadvantageous for its small vulnerable economies (SVEs) Members and incompatible with our level of development.

The G-33 recalls that since July 2008, there have not been any discussions regarding the specific treatment for SVEs on SSM. It was the understanding of the G-33 and its SVEs Members that emphasis would first be on finding a solution for developing countries before proceeding to look at the specific treatment for the SVEs. The G-33 presents this document to emphasize the position of its SVEs Members on various elements of the SSM. This submission is made in pursuance of the mandate in Paragraph 35 of the Doha Ministerial Declaration to frame responses to the trade related issues identified for the fuller integration of the SVEs into the multilateral trading system and in order to address Paragraph 5 (b) and (c) of document TN/AG/W/7 and is without prejudice to its positions on the general solution for other developing countries.

Harry de Gorter, Cornell University

Erika Kliauga, Cornell University

Andre Nassar, ICONE

Please find the relavant files at the link above.

The G-33 developing country group maintains that some SPs must be exempt from tariff cuts in order to ensure that the outcome of the negotiations is faithful to the mandate of the Doha Development Agenda. Conversely, countries such as the US, Malaysia and Thailand argue that special products should not be exempt from tariff reductions. These countries propose that flexibilities for special products be limited to smaller tariff cuts and lesser tariff rate quota (TRQ) expansion than would be accorded otherwise.

To assess the need for market access flexibility, this information note summarizes key findings on the difference between applied and bound duties, or tariff overhang, for 16 ‘proxy’ special products - those most commonly identified as special in the 19 country studies conducted by ICTSD. These are used to examine the effectiveness of the tariff structures for 30 developing country members of the G-33, excluding least-developed countries (LDCs).

The G-33 is the main proponent of the need to exempt special products from tariff cuts. It maintains that the delivery of this flexibility for developing countries is an essential step in ensuring that the outcome of the agricultural negotiations is faithful to the mandate of the Doha Development Agenda. On the other hand, countries such as the US, Malaysia and Thailand argue that special products should not be exempted from tariff reductions because all Members are expected to have market access commitments, as a contribution to the Doha Round. These countries propose that flexibilities for special products be limited to smaller tariff cuts and lesser tariff rate quota (TRQ) expansion compared to non-special products.

To assess developing countries’ need for market access flexibility, this paper looks into the difference between applied and bound duties, or the tariff overhang, for 16 proxy special products which are the most commonly identified potential special products from the 19 country studies on SP and Special Safeguard Mechanism (SSM) conducted by ICTSD. These products are: rice, corn, wheat, beans, milk, dairy products, bovine meat, goat meat, sheep meat, pork, chicken, potatoes, tomatoes, onions, vegetable oils and sugar (ICTSD 2007).

This paper focuses on commodities that have either a zero or a very minimal gap between applied and bound rates for each country. These have the most need for maximum market access flexibility, as any tariff reduction for these products will result in effective cuts on both bound and applied duties, as well as the narrowing down of the difference between bound and applied tariffs for commodities that are important to developing countries’ food security, livelihood security and rural development objectives.

The paper examines the tariff structures for special products of 30 developing country Members of G-33, excluding least-developed countries (LDCs).1 An analysis of current tariff bindings and applied rates shows that nine have zero or negative overhangs, which means that any tariff cut on the bound rates of special products will result in a further narrowing down of the already limited difference between bound applied tariffs. These countries – Barbados, China, Cote d’Ivoire, Grenada, Guyana, Honduras, Jamaica Nicaragua, the Philippines and Venezuela – need to exempt some of their products from tariff reductions. The most common products that have zero or negative tariff overhangs across these countries are rice, chicken, corn and onions.2 Seventeen of the 30 countries covered by the study have tariff overhangs below 10 percentage points, while twenty have tariff overhangs below 20 percentage points.

In approximating the number of special products that should be exempted from tariff reductions, one logical option is to identify countries and commodities that have no or minimal tariff overhangs (not exceeding 10 percentage points) as these will have effective tariff cuts once the proposed tariff reduction for special products is implemented. Based on this criterion, the percentage of SPs that should be excluded from tariff cuts varies widely with each country from 6.25 percent of total SPs in the cases of Grenada and Guyana, to as much as 100 percent in the cases of China and Cote d’Ivoire. Taking all country data together, the percentage of special products that needs maximum flexibility ranges from a minimum of zero to a maximum of 100 percent, at an average of 23.85 percent. Expanding the minimum tariff overhang to 20 percentage points will slightly increase this average to 26.34 percent. There is great disparity in the distribution of overhangs that the above averages fail to capture.

These figures can be viewed as a minimum approximation of developing countries’ need to exempt SPs from tariff reductions, because the analysis is based on the use of the 16 proxy special products across G-33 countries. However, each country has its own SP list, which will more accurately reflect its need for market access flexibility. To have a more realistic evaluation of a country’s need for tariff cut exemption, this paper cross-referenced the results of the analysis above with information from the ICTSD country studies on SP and SSM.3 Data show that some countries’ need for maximum market access flexibility is indeed actually greater, and this becomes more apparent as the SP list becomes more accurate. For instance, for Honduras, the analysis based on the use of the 16 proxy special products showed that 12.5 percent of products need to be exempted from tariff reductions; however, once the analysis is done using the more specific SP list from the Honduras country study commissioned by ICTSD, this number increases to 57 percent, indicating that more than half of the country’s special products have minimal tariff overhang and as such can benefit greatly from a zero cut treatment. The same is true in the case of Barbados and the Philippines where the number of SPs that need to be exempted from tariff reductions increases significantly from 18 percent to 73.33 percent and from 31.25 percent to 81 percent respectively once the lists of special products from the individual ICTSD country studies are used in the evaluation.

However, countries that generally have high tariff bindings and relatively lower applied import duties yielded the same results when analysed using the 16 proxy special products as well as the ICTSD SP list. Overall, the percentage of special products that need to be exempted from tariff cuts, on account of limited difference between bound and applied tariffs, increased from 23.85 percent to 34.90 percent. In terms of tariff lines, the percentage of special products requiring market access flexibility ranges from zero to 11 percent of total 6 digit HS (harmonised system) tariff lines, based on data from countries that identified their special products at this level. However, the wide difference in the tariff structures of developing countries makes these figures less meaningful.

In terms of products, those most commonly identified as having minimal tariff overhangs across all 16 ICTSD studies are beef or bovine meat, pork, milk, dairy products, potatoes, poultry meat and sugar. Other possible potential SPs that have no or narrow gaps between bound and applied rates are: cabbages, carrots, onions, rice, sheep meat, beans, peas, coffee, garlic, lettuce and maize, among others.

Across the 16 ICTSD country studies, there are 45 instances when potential special products have negative, zero or minimal tariff overhangs. This indicates that many developing countries may negotiate for maximum flexibility in the treatment of products that are important to their food security, livelihood security and rural development objectives.

The paper also simulated the application of the proposed treatment for special products on commodities from the country specific SP listing from the 16 ICTSD country studies. The draft modalities on agriculture issued in May 2008 by Agriculture Committee Chairman Falconer outlined the possible treatment of special products. Paragraph 123 of the said document lays out the possible ranges, as described below:

There shall be [a maximum entitlement of 20 per cent and a minimum entitlement4 of] 8 per cent5 of tariff lines available for self-designation as Special Products. Within this entitlement, [forty per cent of those6] [no] tariff lines shall be eligible for no cut. For the remaining tariff lines, there shall be an overall average cut of 15 per cent achieved with a minimum cut of 12 per cent and a maximum cut of 20 per cent on each tariff line.

Guided by these draft modalities, this paper generated new bound rates, and overhangs of 8 percent, 12 percent, 15 percent, based on the proposed tariff cuts for SPs. In order to more accurately evaluate the implications of the proposed treatment on special products for developing countries, the paper used the more specific SP listing from the 16 country studies in determining the percentage of potential special products that would have minimal tariff overhangs every time import duties are reduced.

The results of the simulations show that for some countries, the difference between bound and applied tariffs decreases as tariff cuts increase. For instance, once tariffs on special products are reduced by 8 percent, the number of SPs with tariff overhangs not exceeding 10 percent increases for Barbados and Ecuador but remains unchanged for the other countries. A 15 percent tariff cut on special products will increase the percentage of SPs with minimal tariff overhangs for the Philippines, from 81.81 percent to 90 percent, in addition to the two countries mentioned earlier.

Similarly, more commodities stand to lose the difference between bound and applied tariffs across the 16 countries as tariffs on special products are reduced. In particular, more countries register minimal tariff overhang for milk, pork, poultry meat, sugar, coconut, tomatoes, groundnut and vegetable oil, as import duties on these commodities are cut, based on the proposed modalities on the treatment of SPs.

However, the difference between bound and applied tariff rates only provides one dimension in assessing developing countries’ need for maximum market access flexibility. Another assessment dimension is the capability of current tariff bindings to cover the gap between the domestic price and import price of special products. This is an important consideration because for tariffs to be effective policy tools they should afford governments the flexibility to protect producers from displacement by giving the state the capacity and option to equalise domestic prices with import prices through tariff bindings.

As can be expected, countries with low tariff bindings are more likely to have inadequate bound duties, and as such less capacity to address price gaps for special products to help them protect their small agricultural producers from importation. Examples of these countries are China, Fiji, Ecuador and the Philippines. Fiji and the Philippines have fairly linear tariff structures, with import duty bindings pegged mostly at 40 percent. On the other hand, China and Ecuador have more divergent tariff profiles as bound tariffs vary from one special product to another. For Ecuador, for instance, tariff bindings on special products range from 20 percent to 70 percent, while for China bound rates vary, from 3 percent to 65 percent. Still, what these countries have in common is the fact that in many instances, their tariff bindings are not sufficient to bridge the gap between domestic and import prices for their potential special products. For these countries, any tariff cut on special products will further whittle away their capability and option to bridge the gap in domestic and import price, and consequently their means to protect their small farmers and agricultural producers from liberalisation.

The treatment and selection of special products is a sensitive subject because of the divergent conditions and needs of developing countries. Some countries have negligible tariff bindings while others have high tariff bindings. The results of this study demonstrate that countries with high tariff bindings may rely too heavily on a few commodities to achieve their food security, livelihood and rural development objectives while others with low tariff bindings may face broad economic consequences that impact those objectives. The case studies conducted highlight the need for some countries to be able to exempt certain products from any cuts. An effective special product designation is an important negotiating objective for many developing countries and this may be contingent upon exemption from cuts for some products.

This study attempts to assess the extent to which the proposals contained in the latest draft text would affect countries’ ability to access the SSM, and the extent to which it would be effective in bridging the gap between domestic and international prices. For this purpose, a simulation model was developed utilizing monthly data on imports of 27 agricultural commodities in six developing countries from 2000 to 2005. These monthly data were used as proxies for individual shipments.

In order to determine the extent to which countries would have access to the SSM, the study calculated the percentage of months during which the volume or price-based SSM would allow additional safeguard duties to be applied, based on varying levels of thresholds and other conditions. To measure the effectiveness of the SSM, the study first calculated the number of “problematic months” – those during which import prices plus bound tariffs fell below domestic prices by more than ten percent. The effectiveness rate was considered to be the percentage of problematic months in which additional safeguard duties could be applied and could prop up import prices beyond this ten percent threshold.

The study first analysed a ‘baseline scenario’, which adopted a number of the provisions of the SSM draft text, such as the lower settings for ‘thresholds’ and higher ones for the additional safeguard duties (or ‘remedies’) that countries would be allowed to impose. In this scenario, the SSM was accessible in an average of about 4½ out of every twelve months, but was effective in only one out of every four “problematic” months. Adjusting thresholds and remedies to mid-range levels did not have major effects on access and effectiveness rates, indicating some room for compromise on these aspects. Changes in thresholds however tended to have more discernible effects on the quality of the SSM than alterations in remedy levels. Notably, effectiveness rates did not exceed 46 percent of “problematic” months in any scenario, pointing to the limited utility of the measure even under the most ideal parameter settings.

Imposing caps based on Doha Round starting bound tariffs, current Uruguay Round bindings or applied tariffs clearly had a more debilitating effect, with access rates effectively cut in half, and the effectiveness rate plunging from the baseline level of 27 percent to only 2 percent of “problematic” months. Countries with relatively low tariffs were particularly vulnerable to such caps, which effectively limited remedial duties to the extent of tariff cuts per year in absolute percentage terms. Further simulations indicate that caps in the form of percentages of bound tariffs or absolute percentage points may yield less controversial results, although the actual effect will depend on the tariff profile of a country.

The proposed option allowing for foreign currency exchange adjustments in case of abnormal depreciation of the local currency did not significantly influence access or effectiveness rates. The 12-month maximum imposition period for the volume-based safeguard, coupled with the chair’s proposal for applying the price-based safeguard on a shipment-by-shipment basis, appeared to be superior to a 6-month or end-of-year alternative imposition period, although not by an overly significant degree. The ‘cross-check’ requirement, which disallows the use of the price-based safeguard if imports are declining, had a perceptible impact on access rates but affected the effectiveness of the SSM less significantly.

Given the fact that safeguard duties cannot be imposed on imports falling within tariff rate quota (TRQ) commitments, access and effectiveness rates may be enhanced if TRQs created in the Uruguay Round are not carried over to the Doha Round. This will however require, at the very least, a lowering of bound tariffs to in-quota levels and verification as to whether such a unilateral move is compliant with WTO rules. Finally, reclassifying special or regular products as ‘sensitive’ had detectable effects on the performance of the SSM, mainly due to the creation of new TRQ commitments, but access and effectiveness rates did not vary much with changes in the degree of deviation from the normal tiered tariff reduction formula.

Paragraph 41 of the framework states that: “Developing countries will have the flexibility to designate an appropriate number of products as Special Products, based on criteria of food security, livelihood security and rural development needs.” The text also indicates that the criteria and treatment of special products will be further specified.

In addition, paragraph 42 states that a Special Safeguard Mechanism (SSM) will be established for use by developing countries, the details of which will be developed in the next phase of the negotiations.

No guidance is provided in the framework paper on the criteria for selecting SPs or products to be subject to the SSM. However, in the course of future negotiations, it is inevitable that parameters will be set within which developing countries can select products that will be subject to the Special Product (SP) and SSM modalities.

The purpose of this discussion paper is to provide inputs and raise ideas on a set of criteria within which developing countries might select SPs, building on the criteria of food and livelihood security and rural development identified in Annex A of the July package agreed in the WTO. In addition, the paper is also intended to contribute to discussions on identifying criteria for the selection of products to be covered by the SSM.
Oxford

If they are to avoid being out manoeuvred as they were in the Uruguay Round (where they largely failed, for example, to take advantage of the possibilities to register possible AMS & SSGs), developing countries need to work out how SP and SSM might support their food security and rural livelihood policies. This is harder than it sounds. Thinking (and policy) on food security has developed a great deal in the past decade; the WTO debates have been left behind. For WTO rules to be framed in a way that is relevant to current concepts of food security, countries need to undertake baseline situation analysis and also scenario analysis to identify how trade rule changes might impact on household food security.

Only then will they be in a position either to add detail in further Doha negotiations to the bare concepts set out in the 1 August Decision or to ensure that their own Doha schedules are appropriately framed to be hung on the SDT pegs. It requires trade negotiators and food security specialists to communicate! Analysis is required in three main areas to show how food security and household vulnerability might be affected by the direct and indirect effects of WTO rule change. They are: surges in subsidised food imports, increased competition for products that are especially important for the rural economy, and the effects of tariff cuts on government expenditure in support of household food security.